Pssst! Got any trade secrets? How do you make that chicken so finger lickin’? What is that magic, mystery cola ingredient? While you wouldn’t divulge your company secrets to just anyone, you might let your employees in on them. The trouble is, how do you ensure that staff – current and former – don’t spill the beans?

Trade secrets refer to confidential information with commercial value, generally guarded from public knowledge. They can include technical information – such as designs, methods and formulae, or commercial information – such as customer lists and business procedures.

Perhaps the most famous examples of ‘best kept’ trade secrets are the recipes for Coca-Cola and KFC’s ‘Original Recipe’.

If companies such as Coca-Cola and KFC (both with well over 100,000 employees each worldwide) can protect their coveted secrets – so can you.

Here’s how.

1. IDENTIFY YOUR TRADE SECRETS

The first step to protecting a trade secret is identifying it.

In short, the more ‘jealously guarded’ a piece of information is, the more chance it has of being deemed a trade secret.

The following measures are generally taken into account (Ansell Rubber v Allied Rubber Industries (1967) VR):

The extent to which employees and third parties know the secret

The measures taken to guard the secrecy of the information

The ease or difficulty with which the information could be acquired or duplicated by others

Have something in mind? Great! Read on.

2. PROTECT YOUR IDEAS WITH NON-DISCLOSURE AGREEMENTS

Three words: sign here please!

One way to ensure that employees – past and present – don’t disclose trade secrets is by asking them to sign a confidentiality or non-disclosure agreement (NDA).

An NDA is a legally enforceable contract that binds a person to strict secrecy, and these NDA obligations can be easily incorporated into the employment agreement.

Metis Law tip: Remember to specify that the confidentiality obligations continue even after they stop working for you.

3. PROTECT AGAINST COMPETITION WITH RESTRAINT CLAUSES

Did you know that you can limit former employees from working with competitors where your trade secret may be used?

It’s a little trickier to navigate, but here’s our advice:

Make it reasonable. While you can expressly limit employees from working in a competing business or using confidential information (temporally and/or geographically), you can’t prevent them from earning a living. (Courts don’t usually approve these types of clauses, so be prepared for delicacy).

Metis Law tip: To give your restraint clause the best chance in court, consider ‘cascading clauses’ aka ‘waterfall clauses’. These provide for a series of separate, severable obligations of diminishing stringency. The court can then ‘read down’ the list of clauses from most to least restrictive, offering options for the employee and greater chance of success. For example, you can say that the restrictions apply for 12 months and if that is not enforceable, then they apply for 6 months and if that is not enforceable, then 3 months.

4. ONLY DISCLOSE ON A NEED-TO-KNOW BASIS

The best practical measure you can use to protect your trade secrets, is to implement a ‘need to know’ approach.

In other words, telling only those employees who need to know and only to the extent that will allow them to competently perform their tasks.

Metis Law tip: Practice asking ‘who needs to know?’. By limiting what you share, you keep the good stuff contained and leave a clearer, more traceable trail if problems of confidentiality do arise.

5. MAKE IT WATERTIGHT

To avoid trade secret leaks, maintain a clear and well-publicised company policy on the use of confidential information. Refresh your employees on their company obligations regularly.

Documents emblazoned with a ‘Confidential’ watermark remind employees that a document is secret.

Protect electronic copies of confidential information with a password, and physically secure hard copies where possible.

Still have questions? Want personalised advice to keep your trade secrets safe? We can help you find smart, practical and highly effective legal solutions. Call (02 8880 9383) or email us at metis_at_metislaw.com.au to start the convo.